The G7 industrial powers promised today to make fighting the recession their top priority but to try to limit the knock-on impact of their actions, as concern grows that protectionism is on the increase.
The G7 industrial powers, fearing a 1930s-style resurgence of protectionism, ended crisis talks in Rome on Saturday with a pledge to do all they could to combat recession without distorting free trade.
Aware of their limits, they also adopted a more conciliatory tone towards China, a non-member regarded as vital to success at an April G20 summit in London where both rich and developing economies hope to produce visible progress on promises to make the global financial system safer and more accountable.
"We are confronted with a broader and deeper slowdown than has been experienced in decades," said US Treasury Secretary Timothy Geithner.
"We will work closely with our colleagues in the G7 and the G20 to build consensus on reforms that match the scope fo the problem revealed by this crisis."
On the day in Rome, it was mostly renewed pledges from the gathered finance ministers and central bankers, amid mounting tension over the impact economic stimulus plans and state bailouts of industry could have on each other.
Mr Geithner, making his G7 debut in the job, publicly rowed back on comments that Beijing was manipulating its exchange rate to its advantage in export markets and sought to soothe concerns over Washington's own anti-crisis plans.
Overnight, the US Congress adopted a $787-billion economic rescue plan that includes tens of billions of dollars for public building projects, with conditions including a "Buy American" clause insisting firms use US steel and other US-made goods.
The final joint statement strove to allay concerns that governments determined to protect jobs and ailing industries would abandon commitments to fair cross-border competition.
It said stabilising the economy and financial markets was paramount, meaning that all had to work together and use all possible policy options to maximum effect.
"We will have to do everything to ensure history does not repeat itself," German Finance Minister Peer Steinbrueck said.
In a statement of his own, Mr Geithner said the world faced the worst economic and financial crisis in decades and governments, facing growing domestic unease over the millions of jobs being lost, must respond forcefully.
US president Barack Obama had ensured that implementing the new stimulus package would be done in a way that respected America's international obligations, said Geithner, without going into specifics on how that all squared.
Germany and Britain had kicked off the meeting on Friday by saying the world should avoid repeating the protectionist spiral seen during the Great Depression. They also said the London G20 summit would have to deliver concrete progress on reform of internationa financial regulation and supervision.
Several ministers including Germany's Peer Steinbrueck and Italy's Giulio Tremonti said they were happy to hear Geithner confirm that Washington, despite the Buy America clause was also pledging to respect the rules of the World Trade Organisation.
British finance minister Alistair Darling also attempted to make the G7 deliberations relevant to ordinary people, as millions are laid off and public protests spread in an increasing number of countries.
"We are seeing now determination by countries right across the world to help families and businesses in their own countries but also to work together to sort out the continuing banking problems so we can get lending going again," he said.
The G7 remarks revealed growing unease over what looks like a contradiction between capitalism's commitment to free trade and measures that risk pulling the other way, such as the "Buy American" clause, national car aid plans in France and Italy or a campaign within Britain to keep jobs for British citizens.
The meeting, involving ministers and central bankers of the United States, Japan, Germany, Britain, France, Italy and Canada, is a step on the road to an April summit of the broader G20 grouping, which adds the large emerging market economies.
The current crisis, regarded by many as the worst since the 1930s, started in the United States when a housing boom ended, and with it a boom in mortgage debt derivatives that banks and investors worldwide had bought into.
All the large G7 economies contracted in the last quarter of 2008 and even rising stars like China are slowing hard, though they are not quite in the dire state of more mature economies.
The G7 also touched on concern over China's state-controlled currency, seen as making its manufactured goods unfairly cheap in world markets. But the tone with Beijing was softened.
The statement welcomed China's commitment to a more flexible currency and expected the yuan to continue to appreciate, though they avoided specific reference to other currency trends some of them worry about, notably the decline of the British pound.
"The more conciliatory tone on China is the key departure from previous statements," said UBS bank analyst Geoffrey Yu.
"The G7 has realised that China needs to be brought into the fold of the global financial system rather than be treated as a pariah just because of CNY (yuan) inflexibility."
"We expect this statement to be neutral or marginally positive for risk appetite as the risk of intervention in currency markets or a major currency dispute has fallen in the short term," said the UBS analyst.
The G7 has to ensure its statements are conducive to cooperation in the G20 forum, which includes China, India and other major emerging economies. Those countries are due to attend a crisis summit in London on April 2nd.
Mr Geithner, keen to put a spat with China over the remarks on currency manipulation, said China played a crucial stabilising role. "The United States is very much committed to working closely with China," he told a news conference.
Reuters